Oil prices give up still more ground

Reuters News Service

Published 5:30 am, Tuesday, June 8, 2004

NEW YORK -- Oil prices fell today as dealers took profits from a rally spurred by a fresh disruption to Iraq's crude exports and the threat of a strike in Nigeria, which could further disrupt flows to the global market.

"Speculators were stuck long and were hoping today would bring a short-covering rally. When that didn't happen, they (sold)," said Ed Silliere, analyst at the Energy Merchant.

Traders said many market participants squared their books ahead of the release of weekly supply reports from the U.S. government, expected to show that supplies of both crude oil and gasoline in the U.S. increased last week.

U.S. light crude for July settled at $37.28 a barrel, losing $1.38 or 3.6 percent. In London, July Brent fell 91 cents to close at $35.05.

Crude oil prices have dropped nearly 10 percent from their 21-year highs of above $42 a barrel as an increase in U.S. crude and gasoline stocks reported last week bolstered confidence in supplies for peak summer driving demand.

Even so, a lack of spare world oil supply capacity as producers pump flat out to meet strong demand has left traders nervous about any supply disruption that would further strain world supplies.

World political and economic leaders have warned of the risk high prices could derail economic growth and the subject is expected to be discussed at the G8 summit of industrialized nations that begins Tuesday in Georgia.

German Chancellor Gerhard Schroder, in the U.S. for the summit, said that the rich nations' Group should discuss current oil prices at the meeting as well as measures to fight speculative price increases in the oil market.

Prices rose early today after a source at Iraq's state oil marketing organization said attacks on Iraq's vital oil pipeline to Turkey have again halted crude flows, and that Iraq's oil exports will be limited to some 1.65 million barrels per day (bpd) from its southern Gulf terminals.

Iraq has consistently failed to meet its target of pre-war export levels of 2.0 million bpd as its oil facilities have been hit by technical glitches, as well as security problems.

Oil analysts are also anxious about instability in Saudi Arabia, the world's largest oil exporter, where there has been a spate of attacks on Westerners living in the kingdom.

In the latest attack today, gunmen shot dead an American in the capital Riyadh.

Fears of supply disruption from Africa's biggest oil exporter Nigeria provided further support for oil prices.

The country's umbrella labor union was to hold last-minute talks with government officials late today over a general strike planned for Wednesday, a union leader said.

Unions have threatened to hold a prolonged strike unless the government intervenes to reduce gasoline prices, saying they will disrupt the OPEC member country's oil exports by withdrawing workers from oil exporting terminals.

Oil multinationals have said they were putting in place contingency measures to minimize any disruption to Nigeria's more than two million barrels per day of crude produced.

"The market is quite delicately balanced between the fundamentals of higher supply and fears of supply disruption," said Steve Turner, analyst at Commerzbank.